Leading brokerage Nomura India has revised downward its GDP growth forecast for this fiscal to 5 percent from 5.6 percent earlier saying the recent sharp slide in the rupee and the ongoing currency volatility leave little room for the central bank to cut rates during the entire fiscal, which turn will further weaken the already weakened economy. "Surfacing at a time of weak fundamentals, the rupee depreciation will worsen the growth outlook significantly as financial stability concerns override," the Japanese brokerage said in a note. "We are revising down our GDP growth forecast to 5 per cent in FY14 from 5.6 per cent also for FY15 to 5.8 per cent from 6.7 per cent earlier. Nomura's growth forecast is one of the lowest and is on par with German lender Deutsche Bank and other downgrades by Macquarie and Bank of America-Merrill Lynch which pegged growth at around 5.3-5.5 percent. The Asain Development Bank had also trimmed its forecast to 5.8 per cent from 6 per cent in the calendar year. “While we are cognisant of the measures taken by the government and the fact that there is already excess pessimism, we do not think the economy has reached an inflection point yet and remain worried about the external sector and its macroeconomic consequences over the next nine months," Nomura said in a note.
"We expect external sector concerns to remain, and hence, we now expect rates to remain on hold throughout FY14, compared to a 50 bps cut expected earlier," it added. Maintaining a negative outlook for the country in the next nine months, it said corporates would hold back capex plans, keeping in mind the forthcoming general elections. "Given this political uncertainty and an already dismal starting position, we believe that corporates will choose the prudent option of delaying long-term capex decisions until there is more political certainty next year," Varma said. "We remain negative on our outlook for the country over the next nine months due to deteriorating external finances, feedback effects from a weak rupee (and likely policy responses), a poor growth outlook and the election cycle," it added.
